After the Tyco Scandal, several organizations and groups came up and tried to evaluate and analyze the Tyco fraud. The SmartPros which include the accountants, standard setters, investors formed an audit committee that sought to explain the scandal. The Audit Committees have now become universal. They have passed a law that requires audit committees and national stock exchange should be made universal. This ensures transparency and any misappropriation of funds are detected early enough before a major scandal is realized again (Albercht, 2011). The requirements have been modeled by the Blue Ribbon Committee and they seek to improve the effectiveness of corporate Audit Committees. The Audit Standards Board and the National Stock Exchange made new rules that were to be implemented immediately after. The rules were made under the recommendations of Blue Ribbon Committee. The Audit Committee is expected to be updated about the financial and operational issues of the company (Wells, 2007). The information should be received on time and should be sufficient. Company’s information should not be kept by the internal auditors only.
The Audit Committee should receive written information if the meetings coincide with the regular board meetings. This helps to avoid planned meetings that are meant to keep the Audit Committee out of it. The Audit Committee is allowed to ask probing questions about the company’s financial transactions and its internal controls (Albrecht, 2011). The committee is also allowed to give suggestions about the improvement of the company’s financial and internal controls. The Audit Committee is expected to have a charter that will define its mission, responsibilities and goals. It should be able to plan an annual agenda, its findings and conclusions. The Audit Committee members should be trained very well in matters of potential fraudulence. This ensures that the Audit Committee will not be held liable for any failure of the company’s financial status.
The Sarbanes-Oxley Act
President Bush signed into law the Sarbanes-Oxley Act of 2002. This was done to restore the investors’ confidence by disclosure of financial reports. This was after many corporate financial frauds that included Enron, Tyco, WorldCom and others. The act requires that all public companies unveil all their financial reports on quarterly and annual basis. The reports are also required to be forwarded to the Securities and Exchange Commission. The act seeks to have all the external auditors to be allowed to audit and make reports based on the internal control reports. The company’s top executive and the chief financial officer must prove that the financial reports are true and are the best of their knowledge. They must do this in person.
Most of the acts at the Sarbanes-Oxley Act cut across the world. Many countries across the world have adopted the act but they are bound by the law to adapt it. The act, however, has provisions that can only be adapted by specific companies. These companies must have their equities listed in the exchange requirements or Nasdaq. The Sarbanes-Oxley Act includes various companies.
The Securities and Exchange Commission, (SEC). The Commission is given the responsibility of protecting investors by ensuring that securities markets have access to basic facts. Financial Accounting Standards Board (FASB). This organization is in charge of establishing the standards and giving rules on how financial reports should be made. Generally Accepted Accounting Principles (GAAP). Sarbanes-Oxley Act has been a success. It has helped many companies and investors avoid the shock that comes from top executives cooking books.
Tyco International Years Later
Years after the fall of Enron, much has changed about Company’s audit ways. The Tyco scandal has been used as a clear symbol of how fraud and accounting malpractices can affect the performance of a company. The scandal also brought into perspective the accounting methods that were questionable. The Tyco scandal led to the formation of Sarbanes-Oxley Act in 2002. This act regulated companies against such kinds of accounting malpractices. The scandal led to the closure of its main accounting firm. After Tyco filed for Bankruptcy in November 2004, a new board of directors took it up. The new board of directors changed the name of the company. The board of directors reorganized and liquidated its operations and assets. Many strategies have been put into place to try reviving Tyco International. With its bad past records it became difficult for the new directors to attract new and old investors to the Company. Most of the investors had lost confidence in the corporation and so were unwilling to invest back (Conrad, 2010). This was making it hard for Tyco International to pick up its pieces.
Tyco subdivided itself into three smaller companies in 2006. The Board of Directors chose a separate management team. The team was to deal with all the legal and financial aspects that were involved in the separation. The man in charge of this was Bob Scott who had joined Tyco International in 2004. The separation of the three new companies was completed in June 2009. New Directors, board of directors and a new CEO were appointed. Edward Breen became the new CEO. He announced that he would be staying to help in reviving the new Tyco International. Shareholders received common shares from the new formed companies on 29th of June 2011.
Role of Tyco Leadership in Strategic Implementation
Dennis Kozlowski was a key figure in the strategic implementation at Tyco International. Dennis ensured that there was significant growth of Tyco International through acquisitions. He acquired many companies. This saw the increase of profits. The plan however did not last long as the acquisition strategy failed and Tyco started making losses. At this point, Dennis dropped the strategy. Kozlowski had greed for many and as much as he had good ideas about how to grow the company, his personal interest took over him. He mixed personal business with company business.
Role of strategic entrepreneurship in creating firm value at Tyco
Strategic entrepreneurship has been a key role in the creation of value to Tyco. Strategic entrepreneurship is considered a successful method that companies can use to gain wealth. Tyco‘s initial plan was genuine but greed took better of the top executives who ensured they gained by frauding the company.
During the tenure of Kozlowski, the company added profits from $300 million to $36billion. Tyco was not keen at discovering new business opportunities, instead it engaged in competitive advantages. These strategies were not long term but rather short term.
My personal opinion on the Tyco International fraud is that only two top executives should not be blamed for.. A company’s downfall was contributed by a series of illegal acts that are practiced by the top executives. However, I believe the other employees of the company should have taken it to be their business and reported their suspicion to the authorities. By doing so, they would have prevented the scandal. They would not in turn have lost their jobs. A company’s well being is a result of communal and joint responsibility. By each employee taking personal responsibility of their work, major scandals will not be witnessed at work.
The Tyco International scandal remains one of the most renowned scandals in the World (Markman, 2006).The two top executive officers of Tyco international were found guilty of crimes of fraud in 2005. They were found guilty of accepting bonuses worth $120 million without notifying the board of directors. Dennis Kozlowski and Mark Swartz were both sentenced to 25 years of imprisonment. They will however, be allowed parole after serving eight years in prison. Belnick paid $100,000 as civil penalty for his participation in the scandal. Tyco scandal is an open secret because everyone is now aware of the illegal accounting acts that were being practiced at Enron. The secrets that the top directors kept from the public are now open for all to know. They lied to the media about the real financial situation of Tyco just to be able to commit fraud without anyone detecting it. Everything that is done in the dark will eventually come to light. Companies must ensure that there are good company’s policies and regulations that everyone should always adhere to. According to Ramage (2005), transparency is also a key issue when it comes to financial matters.